How Does Labor Mobility Affect Corporate Leverage and Investment?

Ali Sanati

♦ I develop a dynamic model to investigate how labor mobility impacts firms’ decisions. In the model, firms make investment and financing decisions, hire labor with different skill and mobility levels, and set wages through bargaining. The model predicts that increased labor mobility leads high-skill firms to lower financial leverage, reduced responsiveness to investments, and decreased investment rates, while low-skill firms remain unaffected. I confirm these predictions in the data using shocks to workers’ mobility across firms. The results are useful in understanding the effects of labor mobility changes driven by government policies or technological shocks.

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